When Does My Start-Up Need To Start Paying VAT?
As accountants in Peterborough we meet lots of new and start-up business owners that have set up their own business through a passion or a desire; they are amazing at the business services or products they offer, but when it comes to all the other ‘business bits’ there is some confusion.
One of the most common questions we are asked by start-ups is when their business needs to start paying VAT, so we thought we would answer the question in this blog post;
The magic number for VAT is £83k; this means that when your business gets close to a turnover of £83,000 you need to register for VAT with HMRC and begin collecting and paying tax on your eligible products or services.
As a start-up business, a turnover of £83k may seem like a million miles away, but here are some top tips to help you make sure your business is ready for VAT when the time comes.
- Make sure you keep a close eye on your turnover and regularly check how close your sales are to bringing in the magic number of £83k. If you use cloud accounting or a XERO accountant in Peterborough this will be easy to keep an eye on, and when you are close you can start planning ahead for VAT.
- Paying VAT for your start-up business will be much easier if your financial processes are working efficiently and giving you the numbers you need, so take the time to do some financial housekeeping, clean up any messy areas and you’ll be ready to roll.
- While the registration process only takes around 2 weeks it is a good idea to register for VAT as soon as your business turnover is nearing £75 – £80k. The sooner you start with the preparation the sooner you’ll be ready for all the additional admin that comes with VAT requirements – remember that your accountant in Peterborough can help with this too!
- Make sure you plan your quarterly VAT payments; many businesses opt for a separate account for VAT and then work these payments into the budgeting and cash flow for each quarter as it makes it easier to manage financially.
Some businesses choose to register for VAT as soon as they start up as this shows prospective customers and investors that they’re extremely serious about growth and they want to be a big player in the market – however this can have an effect on cash flow and margins.
If you are unsure if you want to register for VAT or not then give us a call; we would be more than happy to talk through the options that are best for you and your business.